July 15, 2020
· Amul is a case study within itself in maintaining uninterrupted supply chains during covid crisis
· There have been a constant struggle faced by many businesses to maintain their supply lines, but Amul has a different saga to say, it will definitely gain market share in 2020-21 because R.S. Sodhi expects an enviable 15-16% revenue growth
The PM was to address the nation on 24 March 2020. Indians in millions waited upon their TVs for covid-19 crisis management planed him. Within minutes of his speech, Modi announced a stringent 21-day lockdown to control the spread of the coronavirus, limiting movement of the entire 1.3 billion population of India which in a way was called ‘Janta curfew’.
With the self-proclaimed curfew imposed from the midnight of 24th March, though essential services were exempted from the lockdown, many did not wait to hear the rest part to his words. The announcement send the people rushing to grocery stores to stock pile on essential commodities.
Like many, Devender Sodhi, too, was stuck to her television to hear the PM. Sodhi notified her husband immediately after the speech as she wanted to stock up on milk, curd, butter and cottage cheese. Quick in action, the husband rushed to the nearest milk booth, but by then the shelves had a bare look. He gathered what little was left of the two small packs of curd and a pouch of butter milk.
Maximum families faced the similar situation throughout that night and grabbed whatever was available. So to say, Sodhi family is actually no ordinary household. The husband who ran to the milk booth to get milk was Rupinder Singh Sodhi popularly known as R. S. Sodhi, MD to Amul a popular household brand and India’s largest dairy company with an annual turnover of ₹52,000 crore.
After his rush-purchase, on his way back home, a thought dawned him, “If my own family is panicking what others must be going through”. Immediately on reach him he released a video shot by his better-half assuring families that milk supplies being an essential food item will not be hampered and will continue to be available no matter what, as dairy products are exempted from the lockdown.
By the time Sodhi recorded the video and sent it to news channels and social media, a crowd had gathered outside a warehouse more than 3,000km away. For the residents of Lunglei, a small hill town in north-eastern India’s Mizoram state, 9pm is a time well past midnight for them. The shops there closes by 6pm but this was not like any other ordinary day.
“There was a winding queue outside our warehouse and we had no choice but to do retail sales,” said Jennyfar Hrahshel, a distributor for Amul and other consumer products from the town. Her team worked late into the night. Surprisingly next morning, Hrahshel received her timely milk delivery truck.
Over the next three months she efficiently fulfilled the rising demand for milk as household consumption shot up with more demands for Amul butter, while the demand for cheese nearly doubled, facing no shortages.
What is more surprising is that till date there is no instances of scarcity of dairy products or consumers being overcharged, while the prices of fruits and vegetables have repeated fluctuations and availability.
The lockdown stands as witness to dairy sector that has saved Indian consumers. Presence of brands like Amul, Nandini in Karnataka, Aavin in Tamil Nadu or Verka in Punjab, maintained a steady supply at regular prices.
“The pandemic proved the inherent strengths of the cooperative dairy industry and the resilient supply chain built by brands like Amul which was later replicated across states (beginning 1970s),” said Harekrishna Misra, professor at the Institute of Rural Management Anand.
According to Misra, the Amul model was a social innovation built on trust and a disciplined supply chain. “Pandemic or no pandemic, it has never reneged on the promise of a stable price to both consumers and farmers despite milk being a highly perishable product.”
Navigating a lockdown
With the total lockdown on way, Amul was already prepared to prevent any disruptions to what Sodhi nicknames its C2C (cow to consumer) and B2C (buffalo to consumer) supply chain.
According to the sources, the supply chain is mammoth. The Gujarat Cooperative Milk Marketing Federation, which sells its products under the Amul brand, is owned by 3.6 million farmers. Of these, around 2.6 million farmers bring their milk twice daily to 18,600 village societies from where chilled milk is transported to district milk unions for processing into packaged milk and value-added products. The products then reach over a billion consumers daily via 10,000 distributors and a million retailers.
“More than a week before the lockdown was announced, we began preparations by intensively planning with supply chain partners,” said Sodhi. Social distancing norms were introduced in village societies beginning 17 March along with new sanitization protocols.
During lockdown, Amul announced extra cash incentives for dairy plant workers, drivers, sales executives, distributors and retailers, while daily workers received between Rs.100 to Rs.125 for their support for working during a pandemic, distributors got an extra 35 paisa incentive per litre of milk. Food and accommodation facilities were made available for workers inside dairy plants to avoid any labour shortages.
Amul contacted the Union Home Ministry and State Animal Husbandry Depts to arrange special passes for its drivers, helpers and workers to ensure empty trucks were permitted to return after delivering milk products.
Not to leave the cattles starving, Amul even arranged fodder from states like Punjab and Haryana to feed the cattle. Amul also maintained uninterrupted supply of packaging materials where packaging factories were located. Close to 45% of its products were shunted through freight trains cutting down on transit time.
On 22 March, three days prior the lockdown, worried labour refused to work at the plant, Shete and his staff took the decision and worked till 3am. “We started taking extra care of our workers, arranging for their food and stay plus cash incentives. From warm water for drinking to Ayurvedic medicines (for improving immunity), we did everything we could,” Shete said.
Shete takes pride in the fact that not a single case of infection was reported among plant workers, not a single litre of milk was wasted and the plant flawlessly handled over 500,000 litres of milk it received every day.
Rating agency Crisil estimates that revenue growth in the Indian dairy sector will be flat during 2020-21, compared to a 10% compound annual growth rate (CAGR) over the past decade due to weak sales of value-added products like flavoured milk, cheese and yogurt, which are more profitable than liquid milk. The closure of hotels and restaurants, which account for 20% revenues of the organized dairy sector, coupled with negligible consumption of products like ice-creams could reduce operating profitability by 50-75 basis points, Crisil stated.
Though unorganized trade and small dairies withdrew from milk procurement, Amul received 15-17% more milk from farmers. Demand for Amul’s liquid packaged milk shot up by 5-7% compared to pre-crisis times as families chose Amul over loose milk and milk products.
The trend witnessed at least 30% more demand for cheese and paneer despite the shutdown of HoReCa sector. The demand for butter and ghee sales are up by 10-20%. Though the demand for ice creams nosedived during the lockdown, Amul was quick to divert its distribution network for ice creams to other product segments.
“The consumer’s trust in Amul and uninterrupted deliveries helped us to grow during this period. We managed to put ₹12,000 crore cash in the hands of the dairy farmers who supplied raw milk to us,” said Sodhi. The result: while many businesses struggled during the pandemic to maintain its supply lines and product sales, Amul is likely to gain market share. In 2020-21, Sodhi is expecting an enviable 15-16% revenue growth, only marginally lower than the 17% CAGR seen in the past years.
“The advantage of the Amul cooperative model is that profits are not a business target. They never turn a farmer away and the primary objective is to deliver products at the lowest possible price to the consumer,” said Sunil Alagh, former CEO of Britannia Industries.
“It has done a brilliant job during the lockdown drawing on its work culture, image and the massive trust it enjoys among consumers. But it could have used this opportunity to enter in a bigger way into adjacent categories like biscuits,” he added.
Rome was not built in a day and so has Amul. A flashback journey to 957, the Kaira milk union in Gujarat’s Anand, under the leadership of its legendary general manager Verghese Kurien, chose the name Amul, derived from the Sanskrit word amulya, which means priceless. Even before India got its independence, farmers of the Kaira union were battling a mighty private firm, Polson Dairy, which deliberately kept milk prices low, forcing them to organize under a cooperative.
“As the chief executive of their cooperative my main goal became to ensure the best deal for the farmers… without exploiting the consumer,” wrote Kurien in his autobiography ‘I Too Had a Dream’. “Very soon I was convinced that one of our key areas of concentration would have to be marketing of these products… there could have been no production of anything unless it was marketed at a price advantageous to those who produced it, which provided them with an incentive to produce more and more.”
The result proved excellent longest-running campaigns in Indian advertising history ever: the Amul Mascot, an adorable little girl wearing a polka-dotted skirt, who appeared on packs of butter with the punchline “Utterly, Butterly, Delicious.”
This immense extreme success of the Amul brand was what prompted the then PM Lal Bahadur Shastri to request Kurien to help repeat the Amul model across the country. In the summer of 1970, the official launch of “The Billion Litre Idea” also known as Operation Flood eventually projected India to become the largest producer of milk in the world. It is largely because of these farmer-owned dairy cooperatives which prevented any supply disruption during the ongoing pandemic in today’s world.
In the recently released Kantar Brand Footprint report shows that Amul, Aavin and Nandini are among the top brands preferred Indian consumers. Among all fast-moving consumer goods (FMCG) brands in India, Amul was only second to Parle biscuits.
“The success of the Amul model is a result of a unique mix—a company owned by farmers, managed by professionals, where consumer safety and trust are paramount,” said T. Nanda Kumar, former chairman of the National Dairy Development Board. “If farmers’ share in the consumer rupee is a measure of success, Amul could be a benchmark while fixing the fruits and vegetables supply chain in India.”